Renting spells long-term disaster
I have been a property owner for 25 years and a realtor for 13. Time and time again I see people paying more for their leases than I pay for my mortgage (in a rather large country home, I might add). They plan on "renting for a year or two" and then buying.
What happens in that year or two? Number one, they are living in a house they don't really like, because there was little to choose from when they were looking for leases. They haven't been able to remodel or decorate anything, because - let's face it -- the house isn't theirs. If they're lucky, they haven't had to hear the person living above or below them and they've been meeting monthly to split up the utility bills. Most of all, they have completely missed out on cashing in on the most extraordinary 2 years in real estate history, where homes have increased in value at a phenomenal pace. After their "year or two" leasing, they still haven't saved their down payment and houses are much more expensive than when they first launched their plan. The 5% down they were trying to save, is now $20,000 more than it was then....
This is a vicious cycle. It is very common, and with house prices rising with no apparent end in sight, it's not hard to imagine that more and more people will find themselves in this position in the future.
How to escape this seemingly hopeless situation?
The answers are not what dreams are made of, but they will work. First of all, a further commute it likely not something you can escape (for now). In my area of influence, to live in Barrie is a tough commute if you work in Toronto, but it's a tough pill to swallow only for a few years. House prices are noticeably lower there, as well as Alliston, Angus. Getting into the market is the toughest step, and then you can move up from there.
Start with a home that is perhaps not exactly your dream home. Maybe it needs some sweat and tears, or it doesn't have the dream kitchen or backyard. Choose a home that has good re-sale potential (because that's the plan!)
Put your pride on hold ! If your parents can lend you the funds for a down payment, take it! There is no way to escape the down payment. Only one important point however... your parents must "gift" it to you, or the bank will not be happy that you have another debt to service.
Don't be afraid to take out of your RRsp. Yes, there is a penalty and, yes, you will have to pay income tax on it, but the LOSS you experience from paying someone else's mortgage instead of your own, and losing out when property values increase is far greater than those penalties!!!! You may also consider making an investment with a friend.
A good example of a first-time purchase is, let's say, a townhouse in Barrie for $320,000. 5% down payment would be $16,000. Add to that additional closing costs of around $3000, we're talking $19,000. Mortgage payments would be somewhere around $1200/month (depending on many factors). After owning this home for a few years, your equity increases, potentially increase in market values, and tadaa, you can move "up" a bit, using the principle as the down payment for the next place and renting is but a distance memory.
Talk to me, if you think it's time to make this happen. I can give you advice on how to keep your credit report clean and sparkling too.